Miller Industries, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; comparisons are with Q1 2014 unless otherwise noted. Miller Industries manufactures vehicle towing and recovery equipment. Unless stated otherwise, financial figures below are in thousands of dollars.
Financial results
| Metric | Q1 2015 | Q1 2014 | Change / context |
|---|---|---|---|
| Net sales | $126,788 | $104,168 | Up 21.7% |
| Gross profit | $11,952 | $10,938 | Up 9.3%; gross margin 9.4%, versus 10.5% |
| Income before taxes | $4,293 | $3,640 | Up 17.9% |
| Income tax provision | $1,229 | $1,340 | Effective tax rate 28.6%, versus 36.8% |
| Net income attributable to Miller Industries | $3,064 | $2,366 | Up 29.5%; diluted EPS $0.27 versus $0.21 |
| Cash from operating activities | $3,057 | $(746) | Improved, with cash flow helped by higher accounts payable |
| Capital expenditures | $1,416 | $202 | Investing cash outflow was $1,415 |
SG&A rose to $7,440 from $7,166 but declined as a share of sales to 5.9% from 6.9%. Interest expense increased to $163 from $70, primarily due to distributor floor-plan financing and chassis purchases. The company declared dividends of $0.16 per share in Q1, compared with $0.15 a year earlier; a further $0.16 quarterly dividend was declared on May 4, 2015.
Balance sheet and liquidity
- Cash and temporary investments were $38,305 at March 31, 2015, down from $39,597 at December 31, 2014. Cash declined by $1,292 during the quarter.
- Current assets were $224,532 and current liabilities $98,946; the current ratio was approximately 2.27. Inventory increased to $61,773 from $56,460.
- The company had no borrowings under its $25 million unsecured revolving credit facility, which matures March 31, 2017. The facility’s stated borrowing rate was LIBOR plus 1.50%; the March 31 rate was 1.68%.
- Shareholders’ equity was $167,922, compared with $168,454 at year-end. Foreign-currency translation reduced accumulated other comprehensive income by $2,068.
Changes, outlook, and risks
- Management attributed sales growth to stronger domestic demand and increased production amid recovering economic conditions and improved consumer sentiment. North American sales rose to $108,450 from $82,769, while foreign sales declined to $18,338 from $21,399.
- Costs of operations rose 23.2%, faster than sales, increasing from 89.5% to 90.6% of revenue and contributing to the lower gross margin. Management cited increased production and demand.
- No specific earnings or revenue guidance was provided. Management said cash on hand, operating cash flow, and available credit were expected to meet cash needs during 2015 and for the next several years, subject to operating and economic conditions.
- The company plans to consolidate and expand Pennsylvania manufacturing to increase capacity and improve efficiency. Estimated project cost is approximately $22 million; $1.885 million had been incurred by March 31, with remaining costs expected in 2015 and 2016. Timing and cost may change; $2.382 million of related construction and equipment commitments was reported.
- Potential customer-default repurchase obligations had a maximum collateral amount of approximately $35.645 million. Management considered the associated liability not material and not probable, and noted that the value of repurchased products mitigates exposure.
- Other risks include industry cyclicality, customer access to financing, raw-material and transportation costs, foreign exchange, suppliers, regulation, labor availability, and warranty or product-liability claims. The company reported ordinary-course litigation and said it did not expect excess liabilities to materially affect results or financial position. No material changes to the prior annual report’s risk factors were reported.
- Foreign-currency transaction loss was $56, versus a $21 gain in Q1 2014; the translation adjustment was a $2,068 loss versus a $260 gain. The company had no outstanding foreign-exchange contracts at quarter-end.
Important facts for investors to verify
- Whether elevated inventory and reliance on increased accounts payable affect future cash conversion and liquidity.
- Whether production-cost growth and the lower gross margin persist as sales volumes change.
- Actual spending, timing, and returns from the Pennsylvania expansion.
- Exposure under customer financing repurchase arrangements and any changes in defaults or collateral values.
- Effects of foreign-exchange movements and the decline in foreign sales, including the location and repatriation implications of $14.431 million held by foreign subsidiaries.